Final answer:
Inadequate internal controls are a characteristic that would most likely heighten an auditor's concern about material misstatement from fraudulent financial reporting, more so than high employee turnover.
Step-by-step explanation:
Among the characteristics that could heighten an auditor's concern about the risk of material misstatement due to fraudulent financial reporting, inadequate internal controls would most likely be the most significant. Weak internal controls can make it easier for misstatements to occur and go undetected. In contrast, other factors such as high employee turnover, low profitability, and frequent changes in accounting policies, may also indicate risks but they do not directly impact the control environment to the extent that inadequate internal controls do.
In the context of bureaucratic oversight, insiders are often in the best position to recognize fraudulent activities or mismanagement. However, the decision to report such issues can be difficult due to the potential personal cost, such as job termination, which can outweigh the perceived benefits of addressing the corruption. This internal conflict underscores the importance of having robust and effective internal controls, as they provide mechanisms that encourage reporting and ensure that financial reporting is as transparent and accurate as possible.